- Rishi Sunak launches £4.3bn scheme to support jobs
- Rishi Sunak unveils Comprehensive Spending Review: key points at a glance
- How to read the budget watchdog’s numbers for the economy
- Borrowing set to hit peacetime record at 19.4pc of total GDP
- OBR says UK GDP to contract 11.3pc this year, unemployment to peak at 7.5pc next year
- £21bn in tax rises and spending cuts needed to stop debt ratio rising
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Rishi Sunak warned the UK’s economy emergency “has only just begun” as he launched new fiscal measures in the face of dire forecasts for growth and unemployment.
The Chancellor unveiled a £4.3bn package of jobs support and announced an increase to the minimum wage for over-23s as part of a one-year Spending Review.
His announcements came as the Office for Budget Responsibility released its latest set of economic forecasts. The fiscal watchdog warned the UK economy will shrink some 11.3pc this year, with unemployment set to rise to 7.5pc next year once the furlough scheme winds down.
The OBR said borrowing will hit £384bn this year, or 19.4pc of total GDP – a peacetime record. It warned that in its central scenario, £21bn in tax hikes and spending cuts would be needed to stop debt rising relative to GDP – although the Government has not yet signalled whether it would be troubled by such an outcome.
That's it from a Spending Review-filled day.
Lots to take in, so I'll leave you with some of our top coverage:
- £30bn of tax rises or cuts needed to balance the books, watchdog warns
- Unemployment to hit three million despite furlough extension
- Government saves £600m on state pension payments as Covid deaths surge
- Living wage rise will spell job losses, hospitality bosses warn
- Sunak to borrow £965bn over six years as economy suffers
And for more general happenings today:
- EU refuses to relax rules on the trading of swaps and derivatives
- De La Rue angles for 'Covid passport' work as turnaround takes hold
- Rupert Murdoch loses race for Simon & Schuster
- Michael Gove admits post-Brexit disruption 'inevitable' at Kent border
- Future shares sink after swoop for GoCompare
Thanks for joining - Louis will be back with you in the morning!
Trade body praises Sunak's infrastructure investment
The Investment Association - a trade body that represents UK investment managers - is welcoming news of Sunak's promised £100bn infrastructure investment.
“Infrastructure investment is vital to boosting economic growth across the country and this is even more true in the wake of the pandemic. Our industry is an increasingly important source of infrastructure funding and we are committed to building this capability and playing a key part in the UK’s post-pandemic recovery," a spokesperson said.
"We therefore welcome the Chancellor’s plans for a new infrastructure bank and look forward to seeing further details in the next Budget.”
- Read more about the Government's plans for major projects and directing more investment away from London.
My colleague Tom Rees rounded up the key points announced today: Rishi Sunak unveils Spending Review: key points at a glance
US markets slip away from records
America's main indexes - the S&P 500 and the Dow Jones = are both retreating slightly after hitting record highs on Tuesday.
Movements by around midday in New York:
- S&P500: -0.3pc to 3,625.77
- Dow Jones: -0.6pc to 29,870.55
Weekly jobless claims added to signs the recovery of the labour market was stalling amid a surge in coronavirus infections.
The Labor Department showed initial claims for state unemployment benefits last week increased to 778,000, from 748,000 the week before. Economists polled by Reuters had forecast a drop to 730,000 applications.
Momentum in the US' labour market is expected to remain slow, with a stimulus package only now expected after President-elect Joe Biden is sworn in on Jan 20.
Sunak's spending spree: How will the UK pay for coronavirus aid?
Our Economics editor Russell Lynch looks at Rishi Sunak's potential options of funding today's spending review:
Unemployment to hit 3m despite extended furlough
Unemployment will surge to a peak of 7.5pc next year when the Chancellor’s support for millions of workers is withdrawn.
My colleague Tom Rees reports:
The Office for Budget Responsibility (OBR) warned that almost 3m Britons will be jobless by the second quarter of 2021, with unemployment reaching close to double the levels seen before the pandemic.
It warned that economic shifts caused by the pandemic, such as homeworking and the online shopping boom, will leave the UK with higher long-lasting joblessness.
Future sinks while GoCo surges
Shares in Future - the publisher behind Marie Claire, Country Life and Classic Rock - have dived after it offered £594m for price comparison website GoCompare. Meanwhile, GoCo Group surged almost 6pc.
My colleague Ben Woods reports:
Future has mounted a cash-and-shares takeover of GoCo Group to bolster its strategy of linking its vast readership of specialist titles with digital advertisers and online retailers.
The move values GoCo Group – the owner of brands such as Go Compare and My Voucher Codes – at 136p a share, a 23pc premium on Tuesday's closing price.
The takeover has been backed by GoCo chairman Sir Peter Wood, who owns 29.65pc of the price comparison firm, a stake worth £170m based on the deal price.
- Read more: Future shares sink after swoop for GoCompare
Sentiment is downbeat
The FTSE 100 has fallen steadily today as investors take in Sunak's announcements and the OBR's stats. London's benchmark is down almost 1pc.
Here is what Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, says:
1. About the UK economy
"Investors have also been digesting the unpalatable reality of the extent of the damage wreaked by the pandemic. The UK economy is not expected to return to pre-crisis levels until 2022, so the spending taps are being kept on to try and limit the damage of the biggest peacetime shock on record."
2. About Brexit
"There is also renewed nervousness washing around the financial markets about the outcome of Brexit negotiations. European Commission President Ursula von der Leyen said today the EU was well prepared for a no deal scenario and warned she couldn’t guarantee that a trade deal would be clinched. If agreement isn’t reached, the economic pain will worsen, and it will be much harder for the UK economy to climb out of the abyss."
EU refuses to relax rules on post-Brexit financial trading
Europe’s financial markets regulator has thrown down the gauntlet over post-Brexit trading by refusing to relax rules on the trading of swaps and derivatives.
My colleague Michael O’Dwyer reports:
The European Securities and Markets Authority said that EU rules on trading of complex financial instruments would mean that UK branches of European banks will have to comply with both British and European rules after the Brexit transition ends on Dec 31.
The decision could effectively force some financial institutions to execute trades in New York or other European hubs rather than in the UK.
London currently dominates the multi-trillion pound derivatives sector and has a far greater market share than hubs in France or Germany - the two leaders among the EU 27.
Esma, the Paris-based regulator, laid the blame at the door of British negotiators. It said the situation was “primarily a consequence” of the way the UK had chosen to implement trading rules after the transition period.
Living wage rise will cause job losses, hospitality bosses warn
Hospitality chiefs have warned that many of the sector’s workers are unlikely to benefit from an increase in the living wage as tough Covid restrictions risk thousand of job losses.
My colleagues Hannah Uttley and Laura Onita report:
Setting out his spending review in the Commons, the Chancellor said the national living wage would increase by 2.2pc to £8.91 an hour from April 2021, lower than the £9.21 rate previously expected.
Laura Gardiner, director of the Living Wage Foundation, said extending the national living wage would provide a “big pay boost for many younger workers who have borne the brunt of this economic crisis”.
But critics warned the pay rise would deal a further blow to the struggling hospitality and retail sectors, which have already seen hundreds of thousands of job losses since the pandemic hit.
US economic round-up
With Thanksgiving tomorrow, there has been a deluge of US economic news today. Here are some of the highlights:
- Weekly initial jobless claims rose to 778,00, from the previous week’s 748,000.
- Continuing claims fell to 6.07m from from 6.34m.
- Durable goods orders rose 1.3pc in October, beating expectations for a 0.8pc gain.
- Personal income fell 0.7pc, while spending rose 0.5pc.
- The second estimate for third-quarter GDP gave an annualised reading of 33.1pc, in line with the previous estimate.
- New home sales fell slightly to 999,000 in October, but beat expectations of 975,000.
Let’s catch up on some news from beyond the Spending Review:
- De La Rue angles for 'Covid passport' work as turnaround takes hold: The banknote printer hopes to land deals guaranteeing the security of vaccines and certificates showing people are free from coronavirus.
- Michael Gove admits post-Brexit disruption 'inevitable' at Kent border: The Cabinet Secretary says he hopes there will be only 'two to three weeks' of disruption from Jan 1.
- Pubs demand evidence linking venues to virus outbreaks: The Campaign for Real Ale urges ministers to stop “scapegoating” pubs for the pandemic.
UK won’t fix RPI until 2030
The UK will delay fixing a flawed measure of inflation for another decade in order to “minimise the impact” caused by its removal.
The Retail Price Index will staggers onwards, describe widespread criticism, until the final RPI-linked gilts mature in 2030.
From then, the Government will will use the methods and data used to calculate the more reliable Consumer price Index to RPI.
Bloomberg has more details:
The problems relate to RPI’s methodology that overstated inflation compared with CPI. The gap has averaged about 80 basis points over the past decade, meaning a reform that aligns RPI will also reduce returns on inflation-linked bonds.
RPI has also tended to be higher than CPIH, although the two measures were level in August this year.
The move to finally fix the index follows years of criticism and multiple calls for action from lawmakers and the central bank.
OBR: New job support measures delay and weaken unemployment wave
The watchdog says the latest job support measures, including the extension of the Coronavirus Job Retention Scheme (aka the furlough scheme), “both delay and attenuate” an expected rise in unemployment. It added:
Under our central forecast, unemployment peaks at 7.5 per cent in the second quarter of 2021. The CJRS extension is expected to result in the peak in unemployment occurring two quarters later and at a lower level than would have occurred in its absence.
The CJRS extension, along with other new measures, are expected to lower the level of unemployment in the second quarter of 2021 by around 300,000 compared to what would have happened in their absence.
Here’s how those predictions look, including an 11pc peak in a downside scenario in which a third wave lands next winter:
Full report: Borrowing to hit £863bn over five years
My colleague Tim Wallace has a full report on the OBR’s findings. He writes:
Rishi Sunak is only at the start of a record borrowing binge as the Office for Budget Responsibility predicted the Chancellor will run up a deficit of almost £400bn this year.
Borrowing will slow from £394bn this year to £164bn in 2021/22 – still bigger than the peak deficit in the financial crisis – before dropping to around £100bn per year for the remaining three years of the forecast.
The bumper debt of more than £860bn will be so long lasting in part because the pandemic has dealt a long-term blow to the economy.
OBR: Key scenarios
Here are the OBR’s three key scenarios for the UK’s economic trajectory, including the warning that the UK could miss budget balance and net investment targets in the worst-case (downside) scenario – “in which lockdown has to be extended, vaccines prove ineffective in keeping the virus in check, and a more substantial and lasting economic adjustment is required.
OBR: No-deal Brexit would immediately take 2pc off GDP
The fiscal watchdog says its baseline assumption is that a no-deal Brexit would reduce UK GDP by 2pc in 2021, with the short-term impact attributed to “various temporary disruptions to cross-border trade” that would be resolved as the year passes. It added:
However, the longer-term hit to productivity builds slowly to leave output around 1.5pc lower than our central forecast after five years. This would continue to build beyond the forecast horizon to reach 2 per cent in steady state.
In such an event, the unemployment rate would hit 8.3pc next year, and the UK economy wouldn’t return to pre-virus size until the third-quarter of 2023, it added.
Sunak’s speech: key points
Not too short, nor particularly sweet, but the Chancellor has delivered broadly what was expected: cuts to public sector pay and overseas aid, along with new job support measures. here are some key points:
- The OBR predicts the economy will shrink 11.3pc this year – the worst drop in at least 300 years.
- Total borrowing is set to hit £384bn, or 19.4pc of total GDP – a peacetime record.
- Unemployment will peak at 7.5pc midway through next year, the fiscal watchdog said.
- Total departmental spending will be £540bn next year. There was no return to austerity for the Chancellor, who will deliver on an increase in Government spending.
- The minimum wage will increase to £8.91 per year, and apply to those aged 23 and over.
Sunak wraps up
After some repetition and some uplifting waffle, the Chancellor has finished speaking. Let’s take a closer look at those OBR forecasts – you can follow the latest in the Commons via our politics live blog:
- Politics latest news: Rishi Sunak says ‘economic emergency has only just begun’
£4bn ‘levelling-up’ fund launched
Rishi Sunak has launched a new ‘Levelling Up Fund’ which he says is worth £4bn. He adds:
Any local area will be able to bid directly to fund local projects. The fund will be managed jointly between the Treasury, the DfT and the MHCLG – taking a new, holistic, place-based approach to the needs of local areas. Projects must have real impact. They must be delivered within this Parliament. And they must command local support, including from their Member of Parliament.
Total departmental spending at £540bn next year
Rishi Sunak has put a headline figure of £540bn on total departmental spending next year, which he says is a £14.8bn rise in cash terms. This is a 3.8pc increase, the fastest in 15 years, he says. He points to funding increases for health spending, and the budgets for Scotland, Wales and Northern Ireland.
Minimum wage increased
As Boris Johnson let slip earlier, there’s a minimum wage rise: the Chancellor says the lowest level of pay (the National Living Wage) will rise by 2.2pc to £8.91 an hour, with the rate extended to those aged 23 and over (the top rate currently only applies to those aged 25 and over). He adds:
Taken together, these minimum wage increases will likely benefit around 2m people. A full-time worker on the National Living Wage will see their annual earnings increase by £345 next year. Compared to 2016 when the policy was first introduced, that’s a pay rise of over £4,000.
Partial public-sector pay freeze
The Chancellor says the pandemic has “deepened the disparity between public and private sector wages”. As widely briefed, he says that wages will be frozen for many public sector workers, with the exception of nurses, doctors and other NHS workers – one million of whom will get a pay rise. On top of this, 2.1m public sector workers earning under £24,000 will be guaranteed a £250 pay rise.
Unemployment expected to peak at 7.5pc next year
The Chancellor, announcing his widely-trailed £3bn for direct jobs support, says the OBR predicts unemployment will peak at 7.5pc in the second quarter of 2021 with 2.6m people unemployed – slightly lower than the peak predicted by the Bank of England. He said: “Unemployment is then forecast to fall in every year, reaching 4.4pc by the end of 2024.”
Borrowing forecast to reach £394bn this year
As a result of the Government’s extraordinary measures, the Chancellor says the UK is forecast to borrow £394bn this year, equivalent to 19pc of total GDP. That’s the highest amount borrowed during peacetime.
Fleshing out the forecasts, he added:
Borrowing falls to £164bn next year, £105bn in 2022-23, then remains at around £100bn, 4pc of GDP, for the remainder of the forecast. Underlying debt – after removing the temporary effect of the Bank of England’s asset purchases – is forecast to be 91.9pc of GDP this year.
Here are the GDP predictions, as presented by Mr Sunak:
- 2020: -11.3pc
- 2021: +5.5pc
- 2022: +6.6pc
- 2023: +2.3pc
- 2024: +1.7pc
- 2025: +1.8pc
Even with growth returning, our economic output is not expected to return to pre-crisis levels until the fourth quarter of 2022. And the economic damage is likely to be lasting. Long-term scarring means, in 2025, the economy will be around 3% smaller than expected in the March Budget
Sunak: We are allocating a total of £280bn
The Chancellor says today’s Spending review includes key Covid-19 priorities, but also “a once-in-a-generation investment in infrastructure”.
He told MPs:
Taken together, today’s figures confirm: This year, we are providing £280bn to get our country through coronavirus. Next year, to fund our programmes on testing, personal protective equipment, and vaccines – we are allocating an initial £18bn.
He says that, taken together, public services funding to tackle the virus will total £55bn.
A smaller spending review than expected
As we wait for the Chancellor to begin speaking, a reminder that today’s spending review was originally supposed to cover three years of spending.
Due to the pandemic, Mr Sunak was forced to cut that ambition, and the spending settlements – with the exception of some areas such as the NHS, defence and schools – will cover just one year.
Some timings for what’s coming up:
- The Chancellor is expected to begin speaking at 12:30pm, and will announce some of the headline figures from the OBR’s forecasts during his speech.
- The OBR will release its full forecasts immediately after Rishi Sunak stops speaking. That’s expected to be a bit after 1pm.
Read all the Chancellor’s announcements in one place
As ever, we’ll bring you live updates on the Chancellor’s announcements, plus reaction from the markets, economists and business groups here.
My colleague Tom Rees has also rounded up the announcements so far into one article, which will be updated following the Chancellor’s speech (at roughly half past):
Cost of Eat Out to Help Out reaches £850m
Diners ate more than 160m discounted meals in August thanks to the Chancellor’s Eat Out to Help Out scheme, at a cost of £849m, official data show.
My colleague Lizzy Burden reports:
The Treasury sponsored half the cost of meals up to £10 a head on Mondays, Tuesdays and Wednesdays in August to boost the hospitality sector after the first national lockdown.
New figures from HM Revenue and Customs revealed that more than 49,000 restaurants, pubs and cafes claimed £849m by the end of September through the subsidy scheme. The Treasury had originally budgeted £500m for the scheme.
The majority of claims – 55pc – were from restaurants, with pubs accounting for 28pc of meals.
Official inflation figures for September show the price of dining out rose after the end of the scheme.
FTSE worst hit as European markets fall
European markets shed their early gains and are now moderately lower, with the FTSE 100 falling furthest. Lloyds and Barclays are leading fallers among blue-chips, following a European Central Bank report that said lenders may have to set aside more than initially thought for bad loans prompted by the pandemic.
Virgin Money profits slump on cover for bad loans
Virgin Money’s profits have slumped for 2020 after it put aside half a billion pounds to cover for potentially toxic loans amid fears of a spike in unemployment and the impact that could have on mortgage loans.
My colleague Lucy Burton reports:
The £501m set aside to cover for the toxic debt was higher than City analysts expected, dragging its full-year profits down 77pc compared to a year ago.
The UK's sixth-largest lender said it had “not yet seen any significant credit losses” as a result of the pandemic but was braced for a very uncertain outlook.
“Although the vaccine news is a strong cause of hope for the future, the economic benefits are still some way off when considering the immediate reality of current restrictions,” chief executive David Duffy warned.
Sunak tells cabinet OBR forecasts make for ‘sobering read’
Chancellor Rishi Sunak has told fellow Cabinet members that the latest forecasts from the UK’s fiscal watchdog, set for release later today, will make for “sobering reading”, the PM’s office said.
Mr Sunak said he will announce a plan to deliver the highest levels of sustained investment in almost half a century.
Here’s how Number 10 has described it:
Cabinet was told the OBR forecasts will show the impact the coronavirus pandemic has had on our economy and they will make for a sobering read, showing the extent to which the economy has contracted and the scale of borrowing and debt levels.
But – as the IMF, OBR and others have pointed out – the costs would have been much higher had we not acted in the way we have done.
My colleague Tom Rees has put together a guide to what the OBR’s new numbers mean:
B&Q snaps up DIY app NeedHelp
B&Q owner Kingfisher is set to launch a home improvement business in the UK to help customers resolve DIY disasters following a boom in sales during the Covid crisis.
My colleagues report:
The company has bought NeedHelp, an online platform connecting tradespeople with households in need of DIY help, for €10m (£8.9m).
Kingfisher already has a relationship with the firm in France through its Castorama and Brico Depot stores, but it is the first time such a service has been offered to customers in the UK.
As part of the deal, NeedHelp founder Guillaume de Kergariou will retain a 20pc stake and remain as chief executive, it added.
Kingfisher said the deal: “Represents an important step forward... to build a mobile-first and service-orientated customer experience.”
- Read more: B&Q buys DIY app NeedHelp
United Utilities rises after small profit beat
United Utilities is leading risers on the FTSE 100 today, after reporting first-half results that were slightly ahead of consensus.
The group – which provides water and electricity across large parts of the north west of England – reported a dip in revenues and profit before tax for the six months to the end of September, but Jefferies’ Ahmed Farman said underlying earnings were narrowly ahead of expectations.
United has not furloughed any employees during the pandemic, and has continued to recruit.
It reiterated a policy of dividend increases in line with inflation, with chief executive Steve Mogford saying:
We now have a clearer understanding of the impact of Covid-19 on our business which remains robust and supported by a strong balance sheet.
Here are some of the day’s top stories from the Telegraph Money team:
- Fantasy fund managers could bag a bargain with these battered stocks: The prospects of a successful vaccine and new testing regimes have buoyed stock markets but there are still bargains to be had as many share prices remain depressed.
- Higher-rate taxpayers £85,000 worse off if Rishi Sunak cuts pensions tax relief: Millions of higher earners could be hundreds of thousands of pounds worse off in retirement if the Government targets pension tax relief to plug the growing hole in Treasury coffers.
- Cladding crisis risks ‘freezing the housing market’, MPs warn: Britain’s housing market risks being derailed unless the Government takes action to solve the cladding crisis which has caused thousands of sales to collapse, MPs have warned.
AA shares rise as TowerBrook and Warburg agree 35p/share takeover
AA shares have risen today after it finally reached a deal with private equity buyers, who have offered to buy the company at 35p per share.
The roadside rescue group reached an agreement with TowerBrook and Warburg Pincus over thoffer following months of talks, which were extended several times.
The deal values the entire issued share capital of the AA at £219m, and represents a 40pc premium to its closing price before the offers first emerged in early August.
The bidding consortium believes the AA “has been held back as a result of underinvestment and high levels of debt”, adding it:
[Intends] to inject additional funds into the AA to deleverage the business and provide it with the operational freedom to drive the business forward, to better serve its customers and capitalise on its considerable strengths.
The deal will need to be approved by AA’s shareholders, but given its share price has not quite reached the offer price today, and a rebellion looks unlikely.
AA chair John Leach said:
Having carefully considered the range of options available to the AA including the terms of the proposed acquisition by the consortium, the AA Board has concluded that the acquisition, which offers certain cash value to the AA’s shareholders as well as a significant equity injection to reduce indebtedness, is in the best interests of the AA, its shareholders and wider stakeholders.
GoCo shares surge as Future makes takeover bid
Shares in GoCo Group, the owner of price comparison site GoCompare (of the loud adverts) have soared this morning after publisher Future announced a £595m offer for the group.
Future said the cash-and-shares deal, at a 23.6pc premium to yesterday’s closing price, would “significantly strengthen the [its] proposition of seeking to address the growing consumer demand for informed and value driven purchasing decisions enabled by intent driven content”.
Future – last year’s top FTSE 350 performer – has been on an acquisition spree following strong performances for its string of often-niche magazine and website titles.
The offer has received support from GoCo’s independent directors, who have recommended it to shareholders. Future boss Zillah Byng-Thorne, who also sits on GoCo’s board, did not play a part in the deal valuation or in the commendation, Future said.
Future chair Richard Huntingford said the offer “represents a compelling mixture of complementarity and growth opportunity”, adding:
We believe that the combination is a unique strategic opportunity to create a leading global specialist media and intent platform, capitalising on the growing consumer demand for informed and value driven purchasing decisions enabled by intent driven content, which will deliver strong returns for all shareholders.
In an adjacent release of its full-year results, Future beat expectations on revenue, which rose 53pc compared to the 2019, driven by a mixture of organic growth and new acquisitions.
Babcock falls after weak first-half results
Babcock shares have dropped this morning, after analysts warned weak first-half results leave the company with a big hill to climb in the second half.
The defence outsourcer’s profit before tax drop from £152.5m to £55.3m despite on slightly lower revenues, which the group attributed to a poor performance in its civil aviation operations exacerbated by Covid-19.
Babcock said the pandemic had a “significant impact” across its businesses, adding “additional costs and inefficiencies” related to site access and limits on close-proximity working.
Chief executive David Lockwood said:
In the coming months, we will be reviewing our strategic priorities, execution and delivery. I look forward to reporting back on this in May. In the meantime, we remain focused on delivering for our customers, employees and shareholders and continue to look to the future with confidence.
Royal Bank of Canada’s Andrew Brooke said the performance was “weak as expected”, adding:
[Results] will be H2 weighted and, in our view, growth prospects are muted and the balance sheet remains stretched
Genus shares pop as performance beats expectations
Shares in animal genetics company Genus have popped higher this morning, after the FTSE 250 group said its performance in the four months to the end of October was “ahead of expectations”.
In a trading update ahead of its annual general meeting today, Genus said it had seen good demand from China as the country’s pig herds recover from the devastation of African swine fever.
Its porcine business saw “strong growth” in all regions except North America, where Covid-19 caused a short-term surplus of animals for slaughter due to a shortfall in processing capacity.
Genus said it anticipates continued headwinds due to Covid-19, but said its trading momentum means it “is likely to perform ahead of its previous profit growth expectations for the financial year 2021”.
What the Chancellor will announce today
There’s not much mystery around the Chancellor’s announcement today – most of it has already been briefed out by the Treasury. Rishi Sunak will announce a £4.3bn package aimed at getting one million people back to work and staving off an unemployment surge.
As my colleagues Gordon Rayner and Harry Yorke reported yesterday:
The Office for Budget Responsibility, the Treasury's watchdog, is expected to predict that unemployment, currently at 4.8 per cent, could go as high as eight per cent by the summer – after the end of the furlough scheme – before it starts to fall.
The OBR is also expected to forecast that the economy will have shrunk by 10 per cent by the end of this year – the worst performance in 300 years. The Resolution Foundation think tank believes the OBR will forecast a permanent reduction of three per cent in the UK’s GDP due to the economic “scarring” of coronavirus – the equivalent of £1,000 per person.
Here are some of the key announcements expected (some of which are just re-packaging of existing measures):
- The Chancellor will pledge to “create and support” hundreds of thousands of jobs through tens of billions of pounds of investment in infrastructure, including roads, houses, railways and cycle lanes.
- A £2.9 billion Restart scheme will help the long-term unemployed to find jobs by giving them “intensive, tailored” support to meet their individual circumstances. Another £1.4 billion will be allocated to Job Centres, helping the short-term unemployed back into work.
Mr Sunak will also extend the apprenticeship hiring incentive – which pays employers £2,000 for every new apprentice they hire – to the end of March, when the new tier system of Covid restrictions will end. The jobs schemes will effectively replace the furlough scheme, which finishes on March 31.
He is expected to announce a freeze on public sector pay to help claw back some of the cost of Covid support, as well as reducing foreign aid spending from 0.7 per cent of national income to 0.5 per cent.
He will also confirm a £375 million package to support skills by offering people training to change career.
It’s likely that the Chancellor may have held back some measures in order to secure further favourable coverage in Thursday’s papers.
The OBR’s forecast is the latest in a string of warnings about a looming unemployment spike, which has not materialised as quickly as was feared earlier in the year – something which can be attributed in part to the huge popularity of the furlough scheme.
The Chancellor’s attempts to wind down the Government’s job support schemes ended in failure as new lockdowns forced the Treasury to issue continued support, and furlough itself is now set to run until the end of March.
That has caused forecasters to push back the predictions about when the damage dealt to the UK economy by Covid-19 will manifest itself clearly in the labour market to mid-2021.
Agenda: Market rally set to continue
Good morning. The FTSE 100 is set to push higher at the open ahead of Rishi Sunak's spending review later today.
The Chancellor will speak in the House of Commons around 12:30pm and is expected to announce a raft of measures to boost public services and help the unemployed.
The pound also climbed to $1.34 overnight as Brexit trade talks appear to be nearing a conclusion.
5 things to start your day
1) Councils get powers to shut down firms for flouting Covid rules: Downing Street has allowed councils to temporarily closing premises for up to a week for flouting Covid rules.
2) Arcadia hired independent pension trustees to help tackle deficit: Sir Philip Green's retail empire drafted in independent pension trustees from Dalriada last September, to help tackle its pension deficit.
3) Pubs set to miss out on selling 180m pints under tough new rules: If all wet-led pubs are put under tiers two or three, the industry will lose up to £1.5bn in sales in Dec, with lost beer sales equalling 180m pints.
4) Elon Musk overtakes Bill Gates to become world's second-richest person: The 49-year-old founder of Tesla is now worth $128bn, overtaking the Microsoft co-founder following the carmaker's share price surge.
5) Chinese companies set to invest billions in Brexit Britain: Chinese firms said they will invest billions in Britain post-Brexit, and create thousands of jobs in the next few years, despite souring relations.
What happened overnight
World shares rallied to a record peak on Wednesday, following an overnight surge that saw the Dow Jones benchmark crack 30,000 for the first time as investors cheered a dramatically improved global outlook.
The formal start of US president-elect Joe Biden's transition to the White House and increasing confidence a Covid-19 vaccine would be ready soon ushered in renewed appetite for global shares.
Reports that Mr Biden planned to nominate former Federal Reserve Chair Janet Yellen as Treasury Secretary - a move that could shift the focus heavily toward efforts to tackle growing economic inequality - also cheered markets.
That pushed MSCI's broadest gauge of world stocks up 0.2pc to a record level. Its index of Asia-Pacific shares outside Japan gained 0.45pc while Japan's Nikkei rallied 1.7pc to a 29-year high.
On Wall Street on Tuesday, the Dow Jones Industrial Average rose 1.54pc to 30,046.24 while the S&P 500 gained 1.62pc, to 3,635.41, also a record high. The Nasdaq Composite added 1.31pc.
E-mini futures for the S&P 500 rose another 0.5pc in early Wednesday trade.
Coming up today
Corporate: Brewin Dolphin, Virgin Money UK, AB Dynamics (Full-year results); Babcock, De La Rue, United Utilities, Hicl, Liontrust (Interim results); Melrose Industries, Rotork (Trading update)
Economics: UK Spending Review, Fed Minutes; Personal Spending (Oct)/US Q3 GDP; HMRC Eat Out to Help Out statistics; ECB Financial Stability review